The USD is lower as markets believe that there will no further escalation in regard to Syria. The three Western nations indicated that there will be no more bombing. Today’s higher retail sales did not give added strength to the USD, markets are still concerned with the US/China spat.
The Canadian dollar is stronger and will likely stay below 1.2600 until Wednesday’s Bank of Canada announcement, it is expected to leave the overnight lending rate unchanged, however, it will give some indication as to when it might hike rates.
USDCAD 1.2570, 1.2565, 1.2555 1.2590, 1.2602, 1.2622
USD-CAD has remained heavy after posting a two-month low last Wednesday at 1.2544. A 8% surge in oil prices over the last week to 40-month highs has given the Canadian dollar a boost, helping offset disappointment from the news that an announcement on the NAFTA renegotiation will be delayed. The latest price action in USD-CAD affirms a downside trend that’s been developing over the last three weeks, from levels above 1.3100, and we expect more downside. Initial resistance is at 1.2634-36.
EUR-USD clocked a two-session high of 1.2373 on a dollar-selling move from the 1.2330-35 area. The U.S. currency concurrently has declined versus other units. The narrow USD trade-weighted index (DXY) is showing a 0.25% dip on the day, and Cable and AUD-USD are trading firmer, the former foraying into three-high terrain. In the bigger view, EUR-USD remains near the midway levels of a broad consolidation range that’s been seen for some two months now, which has followed a 14-month rally phase from sub-1.0500 levels. More of the same seems likely, with the odds for a big-picture breakout seeming low at the present time.
Cable lifted above 1.4300 for the first time since January. Her Majesty’s currency also posted gains versus the euro and yen, and is up some 3% on the year-to-date, with Cable making last week its fifth up week out of the last six. Various reasons are been cited in market narratives. One is the expectation for the BoE to hike rates at its monetary policy meeting next month, which would follow last November’s first-in-a-decade hike, and take the repo rate to 0.75%. Another is seasonal, with the end of the UK’s fiscal year often leading to a pickup in sterling demand. And another thread of market conjecture centres on the benefit of last month’s EU and UK’s agreement on a 21-month post-Brexit transitory period, which has calmed nerves in the business and investor community by buying more time to figure out the Northern Irish border situation and negotiate new trading terms. Market participants are also looking to this week’s UK inflation and labour market data (due Wednesday and Tuesday, respectively), which are expected to show CPI remaining at 2.7%, above the BoE’s 2.0% target, and the unemployment rate remaining at the multi-decade 4.3% low. Cable has trend support at 1.4194-96.